Speculative bubbles are frequently associated with financial bubbles. A period affiliated with share price rallies, stock market crashes, and irrational investor behaviour. But there are multiple types of bubbles outside the financial sphere.
I would agree with Peter Thiel’s definition of a bubble which he describes as a period of widespread, intense belief that is eventually proven wrong. Accordingly, one must also consider socio-political bubbles, where the same market exuberance that results in financial booms and busts, can also lead to over-optimism and unrealistic expectations within political, scientific, and societal projects.
Consider the Apollo Project. This program was driven by political factors, specifically the space race with the Soviet Union. Society was consumed by over-enthusiasm for a project that had massive financial, political and individual risks. Market exuberance peaked with the first moon landing in 1969, and subsequently burst as political and public support for the program decreased.
But we got a man on the moon. This is clearly not the same type of bubble as The Tulip Mania of 1637 or The Housing Crisis of 2008. The Apollo Project was a productive bubble. A societal mania that fostered a major scientific breakthrough that otherwise would have been unlikely to occur. This is in contrast to an unproductive bubble: a period of exuberance that results in destruction rather than innovation.
With this in mind, there is another socio-political bubble that we have seen burst – The Centralized Media Bubble.
Centralized Media Bubble
The Centralized Media Bubble was built around the belief that large media institutions were the most trustworthy news outlet and that credentialism was the most important metric for measuring merit.
But whether it be the rise of social media, shift in media business models, political influence, or malicious actors, society has lost confidence in the credibility and accuracy of legacy media. The bubble has burst.
Some may argue that distrust in legacy media is not a new concept. Why is the bubble only bursting now? It can be explained by three components:
- Distrust: What has eroded trust?
- Shield: What has prevented disruption?
- Catalyst: What has facilitated disruption?
What’s Next?
What are the implications of this burst bubble? Remembering that there can be both productive and unproductive bubbles, was the bursting of the Centralized Media Bubble a net benefit to society? Has exuberance resulted in innovation rather than destruction?
The outcome will be productive, with Centralized Media replaced with a new information age, Decentralized Media.
Loss of trust in legacy media institutions was the driving factor in the bursting of the bubble. However, complexity, distribution, and credentials shielded legacy media from new entrants. With this being said, disruption has now been made possible as a result of the Internet, which has nearly eliminated the marginal cost of replication of content. Where previously media was dominated by a few large players, now anyone with an Internet connection can be a journalist, investor, or expert.
Accordingly, there are three areas within legacy media that we have seen burst: Mainstream Media, Business Media, and “Expert” Media.
Mainstream Media
“Never argue with a man who buys ink by the barrel.” – Unknown
Dominant distribution has protected mainstream media from disruption. Their existing customer base, name brand, and capital & human resources have shielded their monopolistic market position.
But as Ladd and Podkul have outlined in “Sowing Distrust of the News Media as an Electoral Strategy”, distrust in mainstream media has heightened as legacy institutions have increasingly covered politics as a game rather than focusing on policy. This has been combined with inaccuracies and biases in the journalistic process, which have ultimately been criticized by politicians.
A new age has been enabled by independent news sources such as Substack or Medium which allow anyone to be a journalist, reporter, writer, or creator. Distribution is now a commodity, accessible by anyone with an Internet connection. Accordingly, the dominant distribution and associated power of mainstream media has diminished.
Business Media
The financial markets have often been described as too complex for the average citizen. Advice such as “invest in mutual funds” or that you should let someone else manage your money have dominated the financial news cycle historically.
However as financial institutions have been exposed to exhibit poor risk management (Citigroup in ’07-08), hold massive short positions (GameStop short squeeze), or seem to have no limit on the printing of money (Central Bank 2020/2021 M1 supply), individuals have lost trust in the legacy financial system and associated news sources.
This loss of trust has evolved into individual investor confidence as financial literacy can be improved easier than ever before. We have experienced the emergence of financial news which speaks the language of the retail investor and reshapes the narrative that has been communicated by legacy business journalism. When combined with the democratization of investing through retail trading platforms, cryptocurrencies, and rolling funds, individuals now also have increased autonomy to invest where they see fit, not necessarily tied to the investment decisions and returns of legacy financial institutions. [1]
“Expert” Media
Western society has experienced an increased reliance on formal qualifications and certifications for employment. This credential inflation has resulted in a heightened emphasis on “trusting the experts”, wherein only those who have a formal credential are able to perform particular occupational tasks or make authoritative statements.
This credentialism intensified during COVID-19, wherein peoples’ lives quite literally depended on the guidance of medical professionals. Accordingly, this advice was much more scrutinized (for good measure) and it was determined that some of the advice shared by these experts was blankly incorrect.
COVID-19 was a time when we needed experts most, however instead of receiving facts, we experienced the politicization of science and societal hand-holding.
The validity or rationality of this advice is not the topic of discussion, I am rather arguing that absolute trust of the experts and associated government institutions is no longer a belief of society.
I would also like to clarify that I am not saying credentialism is synonymous with being untrustworthy. But with this in mind, credentialism is not synonymous with being trustworthy either. We should make decisions based on facts, not certifications, popularity, or influence.
Given that publishing content online has never been easier, anyone can be a “expert.” Their reputation is the product on their content, rather than formal qualifications. This ultimately leads to a shift from credentialism to meritocracy. [2]
Closing Thoughts
A growing distrust of legacy media has been occurring for many years, however individuals have been unable to do anything about it. The Internet has enabled disruption as the marginal cost of replication and friction involved in publishing content is near zero.
Accordingly, we have experienced the bursting of the Centralized Media Bubble, with three areas within legacy media following suit.
This bubble was ultimately productive, as when it burst, we entered a new age – The Decentralized Media era.
It should be emphasized that the returns from a financial and informational perspective are yet to be determined. It is not certain whether the average retail investor will achieve outsized financial returns or be punished by the complete democratization of investing. Similarly, it is not certain whether independent journalists will prioritize truth rather than biases or tabloid-style media. But at least one will have the freedom of choice. An individual can choose to remain loyal to legacy media or seek independent news channels. And if they are still dissatisfied with the media they are exposed to, they can even become a journalist, investor, or expert themselves.
Matthew J. Gilmour
Thoughts, comments, disagreements welcome.
@mattjgilmour
[1] I want to highlight that “beating the market” or generating outsized returns is extremely difficult. I am not arguing that investing is easy or has even become easier than it was historically. Arguably, the investing climate is even more challenging today, especially for amateur investors who may be exposed to scams, rug pulls, or herd mentality. Accordingly, the ultimate financial implications from a returns perspective are yet to be determined.
[2] Although yet to be widely adopted, decentralized prediction markets may also serve to facilitate the accountability and reputation required to discourage biased or misleading opinions.